Short call | Will India be the top FII darling among EMs post Fed's policy pivot? Ashok Leyland, Emcure Pharma in focus

Morgan Stanley shared an 'overweight' stance on India

Someone's pain is someone else's gain: That's how India might benefit from China's sputtering growth. While it is difficult to ignore India's high valuations, it continues to flex its muscles on strong fundamentals, upbeat macro indicators, and a steady stream of domestic liquidity. In contrast, China fumbles with back-to-back disappointing economic data and a wave of downgrades from global brokerages, leaving foreign portfolio investors to search for the next big thing.

The latest US Federal Reserve rate cut could just be the ticket that sends them straight to the hottest new destination in emerging markets – India. Usually, FPIs hunt EMs in a rate cut cycle due to better growth prospects as yields on US bonds and other assets tend to decline.

Morgan Stanley's latest report also supports this sentiment. They predict India to gain market share even after it surpassed China to become the largest market in the MSCI Emerging Markets Index. After China’s peak in early 2021, its weight in the index has been sliced in half to 2.24 percent, while India now holds 2.35 percent weight, making it the sixth-largest market globally, just behind France.

In its pan-Asia EM asset allocation, Morgan Stanley shared an 'overweight' stance on India while being 'underweight' on China. The rationale? India’s nominal GDP growth is over three times faster than China’s, reflecting a striking divergence in earnings and operational growth between the two markets.

With this increased weightage in the MSCI index and the Fed's rate cut pivot, India could well see a fresh surge of foreign inflows, further fueling a domestic liquidity driven rally. Atleast for now, there seems to be no visible risk on the horizon.

So, could India finally be living up to its title as 'the next China'?

Ashok Leyland (Rs 235, -1.97%)

Management forecasts flat volumes for Medium and Heavy Commercial Vehicles industry in FY25

Bull Case: Commodity tailwinds, non-auto business growth (defense, gensets, and spares), and cost-cutting measures are expected to support profitability. Switch Mobility is well-positioned to benefit from growing adoption of electric buses. Company plans to expand distribution network to 750 dealers by FY25 and increase Light Commercial Vehicles (LCV) market coverage to 70-80 percent.

Bear Case: Weak demand and double-digit declines in M&HCV truck volumes are expected in Q2FY25. LCV growth is expected in low single digits. Incentives on scrapping are minimal to drive an uptick in replacement demand.

Emcure Pharmaceuticals (Rs 1,527, +2.24%)

Kotak Institutional Equities initiated 'add' coverage, with Rs 1,655 as target price

Bull Case: Led by healthy organic growth, in-licensing deal with Sanofi, consolidation of Mantra and with most of the legal challenges behind, Kotak expects Emcure to report a 14 percent overall sales CAGR over FY2024-27E.

Bear Case: Certain key risks for the pharma player could be further repercussions due to the drug price-fixing cases in the US and Canada, any further litigations such as the now-resolved one with HDT Biocorp and inability to consistently outperform IPM growth.

(with inputs from Zoya and Neeshita)

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